Tedeton v. Tedeton

Citations: 137 So. 3d 686; 2014 La. App. LEXIS 640; 2014 WL 949082Docket: No. 48,840-CA

Court: Louisiana Court of Appeal; March 12, 2014; Louisiana; State Appellate Court

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The appeal addresses a declaratory judgment regarding the division of ownership of shares in Tedco, Inc., a corporation that operated for over 20 years without formally issuing stock. The appellant, Byron Kirk Tedeton, Sr., one of the original incorporators, is in dispute with the legal heirs of his co-incorporator and father, Clayton Tedeton. The trial court determined that both Kirk and Clayton owned 50% of the shares at Clayton's death, a finding supported by evidence of their equal contributions to the corporation's formation and operations.

The case background includes the incorporation of Tedco on March 15, 1982, by Kirk and Clayton, who produced soap products but did not initially sell them. Clayton actively promoted these products as part of an outreach ministry, while Kirk and his wife managed day-to-day operations. The corporation's early tax returns indicated no individual owned more than 50% of Tedco.

After Clayton's death in 2007, a dispute arose regarding ownership. Kirk filed for declaratory relief to assert he owned all shares, providing a stock certificate claiming ownership of all 1,000 shares and minutes from shareholder meetings that named him and his wife as corporate officers. However, the Defendants presented evidence suggesting that Clayton retained ownership of all shares from the corporation's inception. The court affirmed the trial court’s judgment, concluding that it was not clearly wrong based on the supporting record.

The trial court initially denied Kirk's request for relief but ruled that Clayton's ownership interest in the Miracle II formula was community property that could not be transferred without Patsy's agreement. This decision was appealed, leading to a reversal and remand, allowing for the possibility that Clayton could have transferred the formula to Tedco without Patsy's concurrence. Upon remand, the parties did not present further evidence but made stipulations, confirming that Tedco is a valid Louisiana corporation established on March 11, 1982, with Clayton and Kirk as its incorporators and directors. They also stipulated that Clayton transferred all rights to the Miracle II formula to Tedco.

The trial court found that Kirk and Clayton each owned 50% of Tedco's shares at Clayton's death, discounting the self-serving testimony from both sides, and deemed the post-dated stock certificate and recreated minutes from 2005 as a "sham" with no evidentiary value. The court concluded that the articles of incorporation were the only reliable evidence of ownership.

Kirk appealed, claiming the trial court's decision was clearly wrong given documentary evidence, including the stock certificate and tax returns asserting his sole ownership of Tedco. Defendants countered that Kirk had no ownership interest and that Clayton considered himself the sole owner at his death. The trial court ruled, based on stipulations, that Tedco was incorporated in 1982 and owned the Miracle II product, determining that ownership was equally shared between Kirk and Clayton at the time of Clayton's death in 2007. Kirk argued that the stock certificate indicated his ownership, while Defendants contested its validity as a sham. Under Louisiana law, possession of a stock certificate generally indicates legal ownership.

No individual or entity is liable for claims of interest in shares based on undisclosed legal titles. A stock certificate serves as prima facie evidence of ownership but does not conclusively establish it; actual ownership is determined by the totality of circumstances. Louisiana law (La. R.S. 12:601) protects third parties dealing with record stock owners, and shareholders' rights are unaffected by the presence or absence of stock certificates. Courts can resolve ownership disputes in closely held corporations based on circumstantial evidence despite improper stock certificate issuance, guided by Louisiana corporation law. 

La. R.S. 12:52 outlines the issuance of shares, stating that consideration may be set by incorporators, can consist of various forms of property or services, and that directors' valuations for shares are conclusive. The appellate standard for reviewing factual determinations is the manifest error/clearly wrong standard, where findings can only be overturned if there’s no reasonable factual basis or if the factfinder is clearly wrong.

In the case at hand, the trial court focused on Clayton and Kirk's roles as incorporators and directors despite the lack of formal share valuation or certificates at inception. Evidence of their contributions supported the court's finding of ownership. The trial court also acknowledged that incorporeal property could be consideration for shares. A stipulation confirmed Clayton's transfer of interest in a formula to Tedco, justifying the conclusion that this transfer was in exchange for ownership in the corporation established to sell related products.

Clayton provided sufficient consideration for his shares in Tedco and benefitted financially from the sale of the Miracle II product over the years. The trial court correctly found that Clayton owned a portion of Tedco from the outset. Although Kirk's contribution as consideration for his shares is less clear, the trial court's finding that he made initial contributions is supported by testimony from Kirk and his wife, who helped prepare the Miracle II product in the early 1980s. While the business was ambiguous during that time, commercial manufacturing of Miracle II began in earnest in 1988, coinciding with Clayton's personal financial struggles and relocation to Kirk’s property, which then served as Tedco’s office and production site. This context supports Kirk's contributions as adequate consideration for ownership in the corporation. The trial court's assessment of corporate ownership for Clayton and Kirk appears reasonable and does not violate Louisiana corporation law principles. The appeal reveals disputes regarding the trial court's ruling on ownership, with both parties presenting conflicting third-party testimonies. Notably, attorney Orlando Easterling, who prepared Tedco's corporate documents, implied that Clayton was intended to be the sole owner but acknowledged Kirk's involvement. His documentation suggested Kirk might be a shareholder, yet it did not indicate that Clayton intended to exclude Kirk from ownership. Consequently, the trial court's determination regarding corporate ownership based on the contributions of both Clayton and Kirk stands uncontradicted and is not clearly erroneous, despite differing interpretations of Easterling's testimony.

Kirk's claim of 100% ownership of Tedco is undermined by the trial court’s finding that Clayton owned part of the corporation from its inception. Kirk needed to demonstrate a transfer of Clayton's shares prior to Clayton's death, which he failed to do. There is no evidence of a stock certificate delivery or a formal transfer of ownership from Clayton. Kirk argues that the stock certificate issued in 2005, which he signed as president and Sue as secretary, proves his full ownership; however, it bears a date of March 15, 1982, which is disputed. Steven Dean, a Tedco lawyer, admitted he prepared this certificate in 2005 in response to an FDA investigation, and both Kirk and Sue were not corporate officers in 1982, casting doubt on the document's authenticity.

Dean testified that Clayton was aware of the stock certificate's preparation, stating Clayton did not object to Kirk's ownership claim. However, Dean's credibility was challenged by the Defendants, who highlighted inconsistencies regarding the corporate records prepared for the FDA. Graham, representing Clayton's succession, questioned Dean’s account and noted confusion over the certificate’s date. Dean acknowledged an error in the date but claimed he informed Graham about the 2005 issuance before their August meeting—an assertion Graham denied.

Due to conflicting testimonies and the dubious nature of the corporate records generated post-facto, the trial court found Dean's testimony unconvincing, labeling the documents as a “sham.” Consequently, the court upheld its determination that the 2005 stock certificate did not accurately reflect Clayton's ownership intentions regarding Tedco.

Both Clayton and Kirk provided adequate consideration for their respective shares in Tedco, and the trial court's assessment of their proportional interests was upheld as not manifestly erroneous. At the time of Clayton’s death, Kirk owned 50% of the shares, while Clayton retained the other 50%. The costs for the appeal are to be shared equally between the parties. The court in a previous case, Tedeton I, mandated the inclusion of the Succession of Clayton Tedeton as a party. There is a discrepancy regarding the dates of incorporation; the articles of incorporation indicate a filing on the 11th, while the certificate states March 15, 1982. Evidence suggests that the stock certificate and corporate minutes may have been created in response to litigation rather than the FDA investigation in 2005. The attorney for the defendants requested corporate ownership documents from a Washington, D.C. law firm, which had no records of such documents, only public records from the Louisiana Secretary of State. Despite this, Kirk claimed the documents were delivered to the D.C. firm. Louisiana Revised Statutes 12:52 outlines that shares may be issued for consideration fixed by the board or shareholders, and that shares must be fully paid before issuance. Kirk's commitment in 1988 to improve Tedco is viewed as a contract for services, which can be transferred for shares, as per Louisiana law. However, some courts have interpreted the statute to mean that only services actually rendered can qualify for share issuance, excluding mere promises of future services.

In Prejean v. Commonwealth for Cmty. Change, Inc., the court addressed the validity of share issuance in relation to service performance. Subsequent rulings clarified that even if actual services were not performed initially, later fulfillment of those services could validate the issuance of shares. In Hotard v. Diabetes Self Management Center, Inc., shares were deemed valid based on a promise to provide managerial services, supported by La. R.S. 12:52(C), which states that shares are fully paid upon payment of the fixed consideration. Similarly, in Kibodeaux v. Harrison, the court upheld the trial judge's finding that a shareholder provided significant services and guaranteed corporate obligations in exchange for a half interest in the corporation. Additionally, for limited liability companies, the law (La. R.S. 12:1321) does not mandate that services be rendered before capitalization. Thus, Kirk's promise to ensure Tedco's success and his contribution of property as a production facility could serve as valid consideration for ownership in Tedco, without diluting existing ownership since both he and Clayton contributed simultaneously at the venture's start.